Page 109 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics Ashwani Panesar, Lovely Professional University

Notes Unit 6: Investment

CONTENTS
Objectives
Introduction

6.1 Meaning and Types of Investment
6.2 Factors affecting Investment Decisions
6.2.1 The Rate of Investment

6.2.2 The Marginal Efficiency of Capital (or the Yield)
6.2.3 The Cost and Productivity of Capital Goods
6.2.4 Business Expectations
6.2.5 Profits
6.2.6 Process Innovations

6.2.7 Product Innovations
6.2.8 The Level of Income
6.3 Induced Investment and the Accelerator

6.4 Summary
6.5 Keywords
6.6 Review Questions
6.7 Further Readings

Objectives

After studying this unit, you will be able to:

Define the term 'investment';
Describe different types of investment;
Differentiate between autonomous and induced investment;

Discuss the factors that affect investment decisions;
Explain the Accelerator theory of investment.

Introduction

The survival of a business in the competitive market involves a lot of monetary and
non-monetary effort. One of the major strategies adopted by the firms is investing in new
opportunities. Firms make investments, the long run, by generating capital from their own
resources and borrowing. However, for firms, capital may be a scarce resource so they have to
allocate it in such a manner that they get the maximum return from their investment.
As capital is expensive, the basic objective of the investor is to maximise the net return, i.e.,
revenue minus costs. Capital would then be invested in only those products where there is an

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